Your margin is my opportunity

It feels like an entire month has gone by in a single week.

Microsoft and Google both held events to showcase how they are incorporating AI in their products. I have never seen software incumbents move at this speed. No one knows for sure whether this is a trillion dollar opportunity, but let’s be clear: they aren’t taking any chances.

This week’s essay is about the Google vs. Microsoft AI war. It’s not a listicle of the 10 key takeaways because if AI is going to kill anything, it is going to be listicles.

The announcements

Here’s the low down on the two announcements:

Microsoft went first. It crushed the event. Bing is now apparently powered by a large language model which is more powerful than ChatGPT. It will provide annotated results on the side and cite links. They also announced an update to Microsoft Edge: the browser has a chatbot embedded inside it. You can use it to summarise text from a page and compose new content using the summary.

Google announced Bard, it’s own AI-enabled chatbot. Coverage focussed on the inaccuracy of Bard. Someone asked Bard the following: “What new discoveries from the James Webb space telescope (JWST) can I tell my nine-year old about?”. Bard’s response was that JWST was used to take the first pictures of a planet outside Earth’s solar system. This was incorrect.

Here are some of my thoughts on the announcements this week:

You are never too big for viral marketing

There’s an early access list for Bing. To get on it, Microsoft asks you to download the Bing app and set Bing as your default engine. The screen below screams of moving fast and hustling. Microsoft knows it’s an underdog in this space and is doing everything it can to win share.


Changing user behaviour is hard

Whilst the Bing announcement was great and everything worked, it’s not sufficient to change user behaviour. It doesn’t mean it won’t happen, it just means it’s not enough. Ask people around you: chances are they don’t even know the name of Microsoft’s search engine.

I changed my default to Bing to get access faster and I’m already regretting it. Honestly, it’s not that Bing is much worse than Google. It’s just that my brain is SO used to the user interface of Google. It’s the small things like integration with Google Maps, which I use a lot, that make me want to go back.

The markets have made up their mind

The markets has been pretty clear on its verdict: Microsoft 1, Google 0. There are two ways to look at this. The first angle is that the market doesn’t know AI well enough. Google has invested in AI for ages. It may not have nailed it’s GTM for AI yet, but it’s definitely sitting on a goldmine in terms of tech. It also has way more data.

Microsoft Share Price: Last 7 days
Microsoft Share Price: Last 7 days
Google Share Price: Last 7 days
Google Share Price: Last 7 days

The second angle is a simpler one. Look at the graph below: Google has an 85% market share in the search market. This has been falling for a while now, and Bing’s share has gone up. The market is simply making a calculated bet: if AI is going to reinvent how we search and find information, there is a clear threat to Google.


Your margin is my opportunity

Microsoft’s desire to move quickly in AI may also be a game theory strategy. They know Google processes far more queries than they do, which means integrating AI into search is going to be expensive. Forcing them to do so reduces their margin on search and forces them to make up for it elsewhere. One of these areas might their cloud platform where Azure is strong (second to AWS).

Satya’s turning on the heat

Satya Nadella has been at Microsoft since 1992. He’s widely credited for Microsoft’s transition from an on premie IT provider to a cloud giant (Azure, Microsoft’s cloud service is #2 and is estimated to earn $70 billion+ in revenue).

He acknowledged that Google is the leader in search and respects them. He said he’s waited 20 years for this moment and says

“I hope with our innovation they will definitely want to come out and show that they can dance. I want people to know that we made them dance.”

I can’t but admire it. You have 1/20th the share of the incumbent but you believe in this enough to come out and say that.

To close

This is a very, very large opportunity. For every little bit of market share Bing wins, it can generate billions in revenue. Although, there is a big unknown here: I don’t think ads revenue looks like it does today. In a world where you have a chat like interface for information retrieval, there are fewer links. I’m sure they will figure out a way to monetise but it’s hard to say if it will mimic the revenue we see today.

The fight is on. It’s an exciting time in the space and it’s moving at breakneck speed.